Excerpt:insolvency act (11-12 vic. c. 21), sections 39, 40 - set-off, right of--bills discounted before and dishonurd after insolvency. - - and so clearly within the statute......promissory-notes payable to the insolvents which the insolvents indorsed to the bank and the bank discounted prior to the insolvency and which have since been dishonoured by the makers. according to the decision of mr. justice trevelyan in millar v. national bank of india 19 c. k146 there is mo right of set off under section 39 of the indian insolvency act in respect of a bill or note which has been discounted for the insolvent but has not been dishonoured until after the date of the insolvency, as if the bill is honoured by the acceptor or the note by the maker, there will be no debt due from the insolvent and according to the view taken by the learned judge, it is only claims which of their nature terminate in debts that can be set off under section 39 of the indian insolvency.....

Judgment:

Wallis, J.

1. In this case, the Official Assignee has taken out a garnishee summons calling on the Chartered Bank to show cause why they should not deliver to him Rs. 1,330-9-3, being the balance of the insolvents' current account and four trade bills dated the 11th August 1908. According to the agreed statement of facts, these four bills had been sent to the Bank to be discounted on the 11th August, but the Bank had not discounted them on 13th August, the date of the vesting order. As regards these bills it seems clear that no creditor debt had arisen in respect of them on the date of the insolvency and that the Bank can have no claim to set them off. Nor can the Bank claim to retain them by virtue of their lien as Bankers. Such lien under Section 170 of the Indian Contract Act is only for the general balance of account, and the balance at the date of insolvency was in the insolvents' favour. The Official Assignee is therefore, entitled to succeed as regard] these four notes. As regards the sum of Rs. 1.330-0.3, the Bank claim a set off in respect of certain promissory-notes payable to the insolvents which the insolvents indorsed to the Bank and the Bank discounted prior to the insolvency and which have since been dishonoured by the makers. According to the decision of Mr. Justice Trevelyan in Millar v. National Bank of India 19 C. K146 there is MO right of set off under Section 39 of the Indian Insolvency Act in respect of a bill or note which has been discounted for the insolvent but has not been dishonoured until after the date of the insolvency, as if the bill is honoured by the acceptor or the note by the maker, there will be no debt due from the insolvent and according to the view taken by the learned Judge, it is only claims which of their nature terminate in debts that can be set off under Section 39 of the Indian Insolvency Act. As this case had not been cited, before me on the first argument, I directed the case to be re-argued. Mr. Napier for the Official Assignee now contends that this decision is in accordance not only with the leading case of Rose v. Hart 20 L.R. 533 but also with Young v. Bank of Bengal 1 M.I.A. 87. a decision of the Privy Council on the earlier Indian Act an I he invites me to follow these decisions rather than late English cases such as Alsager v. Currie 12 M. & W. 751 which go to show that mutual credits which may be setoff include credits which have a natural tendency to terminate in debts, and not merely credits which must necessarily terminate in debts. After such consideration as to have been able to the authorities I am, unable to follow the decision in Miller v. National Bank of India 19 C.k 146. In the course of his judgment the learned Judge observed that there is nothing in the Indian Act to permit everything proveable being set off and I was at first much influenced by this as rendering the late English cases inapplicable to Section 39 of the Indian Insolvency Act. This ruling, however, is opposed to the decision of the Privy Council in Young v. Bank of Bengal 1 M.I.A. 87, already cited, in which it was held that under Section 36 of 9 Geo. 4, chapter 73, the law of set off under the Indian Act was entirely assimilated to the English Act then in force 6 Geo. 4, chapter 16. Section 36 of 9 Geo. 4 has, in the present Act, been split up into two sections 29 and 40, but these sections substantially reproduce the language of Section 36 of the previous Act. Construing the present sections in the way in which that section was construed by the Privy Council in Youny v. The Bank of Bengal 20 L.R. 533 I hold that anything may be set off in India which can be set off in England under the Bankruptcy Law for the time being. In this case the Bank is undoubtedly entitled to prove in respect of the bills discounted by it and dishonoured after insolvency and this being so, it is entitled to set them off, and the present case is on all fours with Alsager v. Curie 12 M. & W. 751.

2. Further, even if we confine ourselves to the language of Section 39 of the present Act, I do not think Lord Brougham's judgment in Young v. Bunk of Bengal 1 M.I.A. 87 can be relied as showing that a credit does not arise within the meaning of the section when a bill has been discounted and is outstanding at the date of the insolvency. On the contrary at the bottom of page 149 he observes 'supposing the notes discounted then due or supposing them not due it would have been a case of credit given to Palmer & Co. by them (the Bank) and of debt due by them to Palmer & Co. and so clearly within the statute.' The specific statement that discounting bills is a case of giving credit within the meaning of the section appears to show that some of the general observations in the judgment were not intended to apply to a case such as this and besides Parke B., who was one of the members of the committee who heard Young v. Bank of Bengal 1 M.I.A. 87, explained that decision in Alsager v. Currie 12 M. & W. 751 as proceeding upon the ground that no credit of any kind had been given by Palmer & Co. to the Bank before the date of the insolvency and this was the ground taken in Sir William Follett's argument for the appellant which contains one of the fullest and clearest statements of the statute and case law as to mutual credits to be found anywhere.

3. In the result I hold on this part of the case that the Bank is entitled to set off its claim in respect of the notes discounted before insolvency and since dishonoured.